WEEKLY SYNOPSIS: 15/07/2022

Currency Map:

Brent Crude closed at USD 101 VS prior week close of USD 107. Gold closed at USD 1706.Nifty closed at 16049  vs prior week close of 16220. 10 Year G-SEC Yield closed at 7.43%.

Major developments: USDINR traded in the 79.22-79.96 range last week and closed at 79.87 as against prior week close of 79.25. Rupee declined 0.78% w/w. EUR declined 0.70% w/w and GBP declined 0.75% w/w against Rupee. Indian benchmark Equity index declined 1.05% w/w. 10 Year G-SEC Yield closed at 7.43%. 1-year fwd premia is at 2.95% p.a.

Rupee continued to weaken despite RBI measures to increase inflows. June trade deficit swelled to USD 26.18 bn. FPI’S continued to sell Equities. USD’S broad based rally against majors also weighed down on Rupee.

Indian exports climbed 23.52% y/y to USD 40.13 bn. Imports climbed 57.55% to USD 66.31 bn. Trade deficit expanded to USD 26.18 bn. Apr-June exports climbed 24.51% to USD 118.96 bn. Imports in Apr-June climbed 49.47% to USD 189.75 bn.

Indian CPI for June climbed 7.01%. Average Apr-June inflation is at 7.3%.Food inflation rose 1% m/m. RBI is mandated to maintain inflation rate in the 2 to 6% band. This is the second consecutive Quarter that CPI is above 6%. If July-Sept Quarter CPI averages more than 6%, RBI has to explain its failure to Govt. RBI’S next meeting is on Aug 2 nd to 4 th. WPI inflation climbed 15.18% in June. This is the 15 th consecutive month of double digit data.

IIP surged 19.6% y/y in May as against 7.1% in April. Manufacturing climbed 20.6%, mining climbed 19.6% and Electricity sector grew by 23.5%. Consumer durables sector grew by 58.5%.

RBI announced Rupee settlement for International trade. This could allow Govt to permit Russian banks to open Rupee accounts in India, which can be used for import payments. This move could save USD 30 to USD 36 bn in FX demand and help Rupee.

In 2022-23 fiscal, FII’S have sold 163515 Cr of Equities in Cash segment till date and have sold Rs 8486 Cr of debt till date. In 2021-22, FII’S net sold Rs 128897 cr in Equity segment and have net bought Rs 4805 cr of debt. In 2020-21 financial Year, FII’S nett bought Rs 2,74,203 Cr of Equities and have sold Rs  42820 Cr in debt.

USDINR has supports at 79.65 and later at 79.35/79.10. Resistance is expected near 80/80.25. Rupee movement will depend on Crude price and USD movement against majors.

Global developments: USD index climbed further as strong CPI data reinforced 75 bps rate hike expectation on July 27 th. US CPI rose 1.3% mom in June, above expectation of 1.0% mom. CPI core rose 0.7% mom, also above expectation of 0.5% mom. For the 12-month period, CPI accelerated from 8.6% yoy to 9.1% yoy, above expectation of 8.7% yoy. That’s the highest level since November 1981. 

The deteriorating market sentiment led to a further widening in the yield curve inversion – highlighting the growing fear among market participants that a recession may be on the horizon. The 10Y-2Y spread now sits at -20 basis points (bps).

UK GDP grew 0.5% mom in May, much better than expectation of 0.0%. Services rose 0.4% mom. Production rose 0.9% mom.

European Commission downgraded both 2022 and 2023 Eurozone GDP growth projections. GDP is expected to climb 2.6% in 2022 and 1.4% in 2023. Inflation is expected to be at 7.6% in 2022 and 4% in 2023.

Brent Crude declined to USD 98, on recessionary fears.

Bank of Canada surprised market with 100 bps rate hike.

Currency technical levels: USDINR: 79.35/79.75 (Resistance), 78.84/78.30 (Supports), EURINR: 81.40/82.20(Resistance), 79.50 (Support), GBPINR: 94 (Support)/ 96.75 (Resistance). JPYINR: 57-60 range.

Hedging advise: USDINR Imports be hedged till 78.84 is not broken. EURINR receivables be hedged on spike to 81.50, GBP Exports be hedged at 96+.

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